What Is A Dual Escrow And Why Use It?
Why do one escrow when you can do two? With prices continuing to climb, people find creative ways to structure escrows and in some instances that means doing a double escrow. What is a double escrow and why do it?
A double escrow is having two escrows at the same time. Why would someone do a double escrow? Dual escrows typically occur during a hot market when someone can profit by buying and selling a property at the same time.
Many escrow officers will advise or even refuse to conduct the transaction if all of the sales information has not been disclosed to all parties. Experienced and ethical escrow officers tell stories of one party not fully disclosing info to one of the other parties.
Oftentimes the lack of info involves elder abuse (e.g. someone buying a senior’s home for below market value then reselling it for above market value) or other predatory tactics. A good escrow officer will insist to talk with a seller before conducting the double escrow. Oftentimes buyers will hide some fact from the sellers which can cause serious issues down the line.
Predatory Dual Escrows?
For a double escrow to occur there needs to be something that signifies a rise in sales price (e.g. upgrades, repairs, or a lease option/right of first refusal). It can’t be just one party taking advantage of another party. There needs to be some reason for the change in value. For this reason, doing a double escrow for an REO or short sale would not be allowed or would be considered fraudulent. During short sales and REO sales, the selling bank considers the selling price to be at or near fair market value so conducting a dual escrow and reselling at a significantly higher price would be tantamount to fraud.
Like any other real estate transaction, unusual structuring of a deal can benefit all parties. The rare instances for the proper use of a dual escrow can be a useful tool but those who use the tactic can end up getting themselves and other parties in something more painful than hot water.